Automobiles

Court orders Kia to pay W422b in ordinary wages suit

PUBLISHED :August 31, 2017 - 10:29

UPDATED :August 31, 2017 - 17:27

[THE INVESTOR] A local court ruled bonuses and lunch allowances paid to workers at Kia Motors as part of “ordinary wages” on Aug. 31, ordering the nation’s second-largest carmaker to pay 422.3 billion won ($375.5 million) as compensation.

The Seoul Central District Court was partially upholding the demand by workers from Kia Motors, the nation’s second-largest automaker, who had claimed 1.09 trillion won in compensation. However, the court ordered that they be paid around one-third of the amount.

The court recognized only bonuses and lunch allowances as part of ordinary pay and partially acknowledged the work hours demanded by workers, rejecting their requests to include additional overtime allowances for those who worked on holidays.

The ruling came after a six-year legal battle between Kia workers and the company.

Litigation began in 2011 with unionized workers filing a suit against the company to classify bonuses paid on a regular basis as ordinary wages. The case was followed by another suit in 2014 by 13 workers of the company who filed as representatives of unionized members, as the limitation of suits on wage claims expires in three years.

Ordinary wages are used as the basis of calculating various types of compensation and severance pay.

Workers welcomed the ruling, calling it a crucial event for laborers to bolster their rights at workplaces.

Expressing disappointment, Kia Motors said it would appeal the case.

The 422.3 billion won the court ordered Thursday only covers pay increases between August 2008 to October 2011, the company said. However, if the carmaker loses the case at the upper courts, it might have to provide additional overdue payments for the nine-year period between 2008 to 2017. Therefore, the ruling could cost the carmaker around 1 trillion won.

Prior to the ruling, Kia Motors feared it might have to pay at least 3 trillion won, if retroactive pay increases as well as interest for unpaid wages were added to the court decision.

The carmaker has been voicing concerns that this would pose a massive financial burden and could lead to similar demands from workers at Hyundai Motor, its sister company and the largest carmaker in South Korea. Both companies have been suffering from sluggish sales this year due to slowing demand and Beijing’s retaliatory actions against South Korean companies over Seoul’s decision to deploy a US anti-missile system, they said.

Kia Motors had said that such demands by workers violate “the principle of good faith” and that they were taking legal actions knowing that it may seriously damage the company’s financial status.

But the court rejected this claim, saying that the company had no grounds to prove that such pay increases would pose greater risks to the company. The carmaker is capable of handling such increases as it had enjoyed considerable net profits from 2008 to 2015, the court added.

“(Workers) deserve to have those wages, and (Kia’s) claim of increased wage payment inflicting grave threat to management is inappropriate because it has seen net profits and its management condition is not in bad shape,” the court said.

“The argument of workers violating the principle of good faith is, thus, unacceptable.”

The ruling is likely to have wider ramifications on the corporate community, which already fears the labor friendly policies being driven by the new government led by President Moon Jae-in, a former labor lawyer. The Moon administration has been seeking to raise the minimum wage and urging businesses to shift irregular workers’ statuses to regular ones that have more legal protection as well as more benefits than the former.

Companies in Korea would have to pay an additional 38 trillion won in total if bonuses were to be included in ordinary wages, according to 2013 data from the Korea Employers’ Association.

The Korea International Trade Association, a group representing exporters, criticized the ruling, saying it would undermine Korean carmakers’ export competitiveness and hamper their investments in R&D and job creation. The Korea Chamber of Commerce and Industry also urged the court to reconsider embracing “the principle of good faith,” while demanding the government and the parliament specifically outline the definition and the scope of ordinary wages to reduce such disputes.